On their way up

India courts capital as more reach for wealth

By

ThomasKostigen

MUMBAI, India (MarketWatch) -- An orange Lamborghini sits parked in front of a hotel here. At top speed without traffic it could make it to the largest slum in Asia in just a few minutes. Such is the state of India today, newly minted billionaires placed on top of one of the poorest nations in the world.

In Mumbai, it's especially noticeable: more than half the population lives in shantytowns or slums.

Yet, in between there is a middle class fiery to escape the prongs of poverty and eager to make it big, as in rich, as in super rich. The financial markets are beckoning this crowd, tantalizing it with huge profit promises.

"Markets still have juice for newcomers," shouts The Times of India in its front-page lead story. "Those who missed last trading year's action can cash in even now."

India marks its annual trading session by a different time scheme than the rest of the world. It's based on the Indian calendar -- the new year of Samvat 2064 started last week.

"For those who have never invested in stocks before, market pundits say high levels of the Sensex shouldn't be a deterrence. There's enough upside to earn good returns," the paper writes. "If it's lack of awareness about how the stock market operates that's stopping you from investing in stocks, relax. The simplest way out is to hire an expert with sound knowledge of the markets to manage your investments. That isn't as difficult as one would imagine. All you have to do is invest in a good mutual fund scheme and the fund manager, who comes with it, would invest the money on your behalf."

Wow, sounds easy, right? I quoted the story extensively to show the mentality to which the emerging markets are soliciting assets. They are going after a new crème of wealth that is hoping to get a leg up and a foot in the door of the world economy.

To be sure, India has been a business success story of late. People are earning superior returns on the stock market and the country is adding to its Forbes list of billionaires at a rapid pace.

That's why it's scurrying to attract capital domestically and from abroad. This week, the Bombay Stock Exchange announced that it is taking the Sensex to the world in an agreement with the U.S. Futures Exchange, allowing investors to skirt American depositary receipts and invest directly in Indian stocks.

The move is likely to boost volume on the exchange and will be attractive to those who trade contracts on the Chicago-based electronic futures exchanges.

Volatile market

The Indian stocks markets have been volatile since the start of the new trading year, dropping nearly 600 points on Monday.

That may present buying opportunities, as some Indian financial observers would have you believe, or set the stage for hedge funds to take advantage of the volatility play through derivative instruments. To that end, hedge fund managers will enjoy the new equity futures contracts deal.

To be sure, the market will have to climb higher or all bets are off on long-term stock price appreciation.

"According to market participants, if you are ready to stay invested for a three- to five-year period, you can be expected to get an annual return of around 15% to 20%," the Times of India writes.

That's at least two to three times more of an annual return than any financial adviser worth his or her salt in the U.S. would ever figure into a financial plan.

But this is India, where you can descend from the penthouse of a swank hotel disco, paying hundreds of dollars for a meal while hobnobbing with Bollywood celebrities, and walk on to the street where people sleep.

It's a long, long way from the floor to the ceiling here. So if you're getting swept up in investing in the developing world, make sure you cushion your fall -- it could be a long one.

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